SEATTLE - Nordstrom posted a 20 per cent increase in fourth-quarter net income as high-end shoppers kept spending on clothing and makeup, and customers responded positively to its service improvements.

But annual guidance disappointed investors as the upscale department store continues to invest heavily in e-commerce operations and expand its lower-priced Nordstrom Rack stores. Nordstrom's shares fell more than 2 per cent in after-hours trading.

Luxury spending has rebounded since 2009, but Nordstrom is grappling with new demands from shoppers armed with smartphones and tablets. That's pushing the department store, considered the gold standard in customer service, to redefine the term for a new era. It now offers free shipping for online shoppers and has rolled out mobile devices for its sales associates so they can check out shoppers anywhere in the store.

With that rollout Nordstrom said it's removing some of the traditional cash registers at its Rack stores in the current quarter, and it looks to phase out registers in favour of mobile checkout by next year.

The latest developments come as online sales soared 31 per cent in the fourth quarter and surpassed $1 billion for the first time. Within online, mobile commerce is getting hotter. In the past year, sales coming from mobile devices accounted for more than 20 per cent of the company's total online sales. That was dramatically up from less than 4 per cent in 2010.

"We aspire to be the retailer of choice wherever and whenever customers choose to shop with us," Blake Nordstrom, the retailer's president, told investors during a conference call after the earnings report was released. "And we understand that our customers' definition of services (is) changing."

The Seattle-based retailer's net income for the three months ended Feb. 2 rose to $284 million, or $1.40 per share, from $236 million or $1.11 per share a year ago. That beat analysts' expectations of $1.35 per share.

Overall revenue in stores open at least a year rose by 6.3 per cent. The measure is a key gauge of a retailer's financial health because it excludes stores that opened or closed during the year.

That metric rose 2.2 per cent at its department stores.

Nordstrom Rack, which opened 15 stores in fiscal 2012, continued to show strong sales growth in the fourth quarter. Revenue at stores opened at least a year rose 7.1 per cent for the Rack, which is its largest fourth-quarter increase in the past six years.

For the full year net income rose 8 per cent to $735 million, or $3.56 per share, from $683 million, or $3.14 per share.

Revenue rose 12 per cent to $12.1 billion from $11.76 billion a year ago.

For the upcoming fiscal year, Nordstrom expects net income of $3.65 to $3.80 per share on revenue up 4.5 per cent to 6.5 per cent. Analysts expect net income of $3.97 per share.

Shares fell $1.27, or 2.3 per cent, to $53.25 in aftermarket trading. The stock ended the regular session down 63 cents at $54.42.